Tim Hortons the conquering hero this time

Hey there, time traveller!This article was published 26/8/2014 (1086 days ago), so information in it may no longer be current.

If Tim Hortons Inc. is a Canadian national institution, then the merger (or sale) with Burger King ought to get patriot endorsement because it's designed to facilitate the export of the Timbit and the Double-Double, helping Canadian culture conquer foreign lands.

The $12.5-billion deal is not the largest or most surprising commercial transaction, but it is freighted with assumed national values both companies carry, Tim Hortons to a greater extent in Canada than Burger King in the U.S.

SARAH TAYLOR / WINNIPEG FREE PRESS

Tim Hortons is merging with a partner with 60 years of experience in the American market.

There's nothing more irksome to the Canadian commercial psyche than when a beloved Canadian brand is sold to Corporate America and another downtown Canadian head office goes dark.

But this is not a deal where the strong, opportunistic U.S. player buys a beloved but vulnerable Canadian company for pennies on the dollar.

The Tim Hortons/Burger King deal is not the exact opposite of that (Burger King is technically buying Tim Hortons) but just about.

For starters, the deal is being done between two very profitable players with strong, distinct brands.

And for once, the combined company's head office will stay in Canada. According to the corporate leadership of both companies, that's because Canada is actually the largest operating market -- twice the size of its American footprint -- of the combined entity.

(Despite the hue and cry about this being a corporate U.S. inversion play designed to reduce Burger King's tax bill, its CEO, Daniel Schwartz, took pains to say there would be no meaningful difference in the tax rates it pays.)

And according to the CEOs of both Tim Hortons and Burger King, as well as the managing partner of 3G Capital, the Brazilian-based private equity firm that will own 51 per cent of the new combined company, the deal is being made to effect international growth for Tim Hortons.

In other words, Burger King's shareholders effectively want to be able to share in the profits of what they believe to be Tim Hortons' fantastic international growth opportunities.

And it's Tim Hortons management's desire to grow faster internationally -- and their belief Burger King's network and expertise will help accomplish that -- that made Tim Hortons board unanimously endorse the deal.

Every business transaction has its own set of determining factors, but there has been a long track record of very successful Canadian retailers falling on their faces trying to crack the U.S. market.

And that dynamic goes both ways.

The very recent billion-dollar hit the mismanaged Canadian foray cost Target Corp. is a case in point.

Target's senior management, which has been almost completely overhauled, now admits the company miscalculated the Canadian market.

That's not to say Target would necessarily have been more successful with a Canadian partner.

But Tim Hortons management has made it clear for some time it wants to quicken its growth in the U.S., and by teaming up with a partner that's had 60 years of experience there and is ostensibly motivated to see Tims succeed -- they're corporate siblings now -- it ought to be a better recipe for brewing that kind of success than going it alone.

If Tim Hortons supporters would get a charge out of the company becoming a major presence in the U.S. quick-service restaurant market -- maybe the same kind of nationalist pride we all get when the Canadiens beat the Bruins or for those of us old enough to remember the Blue Jays' World Series victories -- then a partnership with Burger King might be just the ticket.

A serious consideration in this deal -- and one Tims management has undoubtedly chewed over -- is the possibility that Tims has finally saturated the Canadian market. There are 26 locations in Winnipeg alone and more than 3,600 across the country. There are more than twice as many Tim Hortons per capita in Canada than there are McDonald's restaurants in the U.S.

Tim Hortons CEO Marc Caira justifiably was proud to note the company has posted 23 consecutive years of same-store sales growth, but it's been forced to work harder and harder to get that growth, constantly introducing new items and surely outspending all the competition on advertising and marketing.

The U.S. market has been deemed a must-win for Tims, and it's been getting much stronger same-store sales growth from the 866 locations it already has there.

If the brand and its Canadian-ness is as strong as its supporters believe, then it should be able to retain that national identity even while it teams up with an American partner to export itself around the world.

martin.cash@freepress.mb.ca

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